07ASTANA443, KAZAKHSTAN: OIL AND GAS AMENDMENTS SLIGHTLY TIGHTEN

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UNCLAS ASTANA 000443
SIPDIS
DEPT FOR SCA/CEN (O'MARA)
SENSITIVE
SIPDIS
E.O. 12958: N/A
TAGS: ECONENRGEPETKZ
SUBJECT: KAZAKHSTAN: OIL AND GAS AMENDMENTS SLIGHTLY TIGHTEN
GOVERNMENT CONTROL
REF: A. 05 Almaty 3857, B. 06 Astana 927, C. 06 Astana 501
¶1. (SBU) Summary: On January 12, Kazakhstan adopted new amendments
to its "Petroleum" and "Subsoil" laws, the most notable of which
prohibits the transfer of subsoil rights for two years following
signature of a subsoil contract. While this amendment has received
considerable attention in the press, a prominent oil-and-gas
attorney told Energy Officer that, in her opinion, the amendment was
a justifiable response to considerable "speculation" in Kazakhstan's
onshore market; further, as the amendment was not retroactive, it
would have no effect on existing contracts. The new amendments also
strengthen Kazakhstan's "local content" requirements in the
procurement process, and -- in what is likely a response to fears of
growing Chinese ownership of Kazakhstani oil assets -- define the
Energy Ministry's right to refuse a company's participation in a
tender in the interests of "national security." End summary.
Two-Year Moratorium on Rights Transfer
--------------------------------------
¶2. (SBU) On January 12, President Nazarbayev signed into law a
series of amendments to both the 1995 "Petroleum Law" and the 1996
"Subsoil Law." Most notably, the amendments prohibit the
re-assignment of subsoil use rights within two years of a contract's
effective date. KazMunaiGaz and its subsidiaries are exempted from
this proscription.
A Kazakhstani senator explained in the press that the amendment had
been adopted in order to reduce "speculation," or an increasing
tendency of contract signators to transfer their rights without
making any investments or attempting to fulfill their contractual
requirements. Marla Valdez, a leading oil and gas attorney,
applauded the change in a February 16 conversation with Energy
Officer, explaining that, with high oil prices, the sector had
become fraught with speculation. The government was justified in
seeking some continuity of ownership, she argued, adding that "in
the oil business, two years is a very short time." Valdez also
commended the fact that the law was not retroactive.
"National Security" Interests in Tenders
----------------------------------------
¶3. (U) A new Subsoil Law amendment grants the Energy Ministry the
right to refuse an applicant's participation in a tender if awarding
the subsoil rights to that applicant would compromise Kazakhstan's
national security. The amendment repeats language originally
legislated in the fall 2005, in response to the Chinese National
Petroleum Company's (CNPC) bid to purchase PetroKazakhstan (Ref A),
defining the "concentration of rights" as a possible threat to
national security. The media has linked this provision to the
recent sale of Nations Energy's Karazhanbasmunai field to the China
International Trust & Investment Corporation (CITIC Group), and to
the public debate which ensued about China's increasing share of
Kazakhstan's oil producing assets (Ref B).
Local Content
-------------
¶4. (SBU) The new amendments also tighten the GOK's local content
regulations, requiring companies to meet local content benchmarks
annually, rather than on average over the lifetime of a project.
Subsoil users are also required to submit an annual procurement
program. Valdez suggested that the local content amendments "had
not turned out nearly as bad as investors had feared" in the wake of
the October 2006 "Tengiz brawl" (Ref C), which focused national
attention on the issues of local content and pay equity for
Kazakhstani workers, especially in large oil and gas projects.
Valdez explained that the law stipulated that local companies be
granted contracts if they met "state regulations," rather than
"international standards," as desired by Western oil majors.
However, she noted, as part of the WTO accession process,
Kazakhstan's "state regulations" were themselves being amended to
prescribe "international standards," thus yielding the same result.
MILAS

The information recorded on this site has been extracted from http://Wikileaks.org (Kazakhstan) database..

We wish to express our gratitude to Julian Assange and his team for making this data available as it is an important public record.

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